It has been described by ministers as "a new qualification for a new century" that will "strengthen the links between higher education and the world of work".

Perhaps that is why 56 higher education institutions submitted bids this month to run two-year prototypes of foundation degree programmes.

At the launch of the foundation degree prototype prospectus, higher education minister Baroness Blackstone described the qualification as "a radical and direct response to employer demand for more and better trained technicians and associate professionals". It would "deliver the specialist knowledge and skills that employers need, underpinned by rigorous and broad-based academic learning". It was, she said, "a significant step towards a robust ladder of vocational progression".

But universities, colleges and employers invited by Lady Blackstone to become involved in the foundation degree's development could be forgiven for thinking they had heard it all before. Ministers of the past have applied similar rhetoric to a host of qualifications, including the highly criticised national vocational qualifications and general NVQs, and the under-performing modern apprenticeships. The common pattern for sub-degree vocational programmes has been one of under-recruitment, low levels of achievement and high dropout rates.

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There is even evidence that relatively popular and well-respected higher national diploma courses are beginning to see student enrolment numbers fall.

The Confederation of British Industry put its finger on the possible snag with the foundation degree in its response to the government's proposals for the qualification.

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It said: "It is difficult to predict future skill demand, but there are at least three reasons for supposing that expansion of the higher education sector should not exclusively, or even primarily, occur at below honours degree level.

"First, we have been unable to identify any evidence that employer demand will grow primarily at this level.

"Second, there will also be the need for employers to ratchet up their entry requirements in order to differentiate applicants more readily, implying growth at the top end of the qualifications framework.

"Third, there is little evidence that skills shortages are systematically greater among those recruiting at sub-degree level."

In other words, there may not be a very big employment market for foundation degree graduates.

The CBI warns that while there is wide employer support for the principle of the foundation degree - with 77 per cent of CBI member firms indicating in a survey that they could see value in it - development of the qualification is "in danger of being rushed". It says "the proposals constitute a major change in higher education provision, yet there has been no opportunity for market research to be carried out".

The first ten to 20 prototypes, to be announced next month, will recruit from September next year, while the Higher Education Funding Council for England will also make foundation degree-funded numbers available to institutions outside the prototypes from 2002-03. But the CBI argues there are "major problems" with this roll-out in terms of marketing the qualification and guaranteeing rigorous quality control.

Despite these well-publicised misgivings from major employers, there has been no shortage of universities and colleges ready to chance their arm at running foundation degree programmes. It seems that with ministers predicting the qualification will play a key role in expanding higher education, it is felt this is a funding bandwagon that institutions cannot afford to miss. The government has earmarked Pounds 5 million for the start-up of the prototypes alone, and one source has suggested this could be extended.

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Many institutions that have put in prototype bids openly admit to having major concerns about the foundation degree. But as one senior manager, who originally criticised the concept of foundation degrees but is backing his institution's prototype bid, commented: "Principles may be priceless, but there's money in this."

Department for Education and Employment officials are aware of the danger that financial rather than educational incentives could drive the early stages of the initiative. While sources acknowledge that the foundation degree could sweep up other sub-degree qualifications such as HNDs if it proved popular and successful, officials are likely to frown on "rogue" foundation degrees created simply by re-badging existing programmes.

Judith Norrington, director of curriculum and quality for the Association of Colleges, warns that rebadging HNDs as foundation degrees could create a new recruitment war in further education. Problems could surface for colleges continuing to develop and recruit on HND and HNC programmes validated by the qualifications agency Edexcel, rather than by a degree-awarding institution. Such programmes could not be converted into foundation degrees.

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She said: "We would have to assume that in a lot of cases the word degree is quite a pull for students, so we would need to monitor what effect that has on recruitment for HNDs. It's a question of whether foundation degrees will attract an additional cohort of students or simply substitute the existing one."

Paul Gibbs, Edexcel's head of higher education, thinks there will be more overlap with HNCs, which already provide valuable work experience of the kind specified for foundation degrees. The new qualification fits better with regional strategy rather than the national market that HNDs target, he said.

"Foundation degrees will have to prove they can provide more than a subtle difference from HNCs and HNDs for employers to take them on board. I am not sure yet that the marketing case has been made. There is an inherent problem in that you cannot control what the market wants. The DFEE seems to take the view that there will be a market demand as long as it sanctions it," he added.

According to Roger Brown, principal of Southampton Institute, the foundation degree could prove as much a threat to the widespread availability of honours degrees as to HND programmes. If it recruited enough students, the government might be tempted to see it as a cheap way of achieving higher education targets and take steps to restrict honours degrees to "prestigious" institutions only, he warned. But he added: "We have yet to see whether the foundation degree provides something that existing qualifications do not. Until that time comes, the message ought to be 'hang on to your HNDs'."

Institutions that have put in bids for prototype funding are unsurprisingly enthusiastic about their own foundation degree plans. Bidders include top research universities such as Warwick. John Field, Warwick's professor of continuing education, said the motivation behind the bid was to widen participation and "do something very different from what we already do".

The university has teamed up with two local colleges and employers to propose a foundation degree in community enterprise and development. It followed consultation with more than 80 organisations in the local community. This found there was a gap in the market for sub-degree qualifications in the voluntary sector.

Despite the positive response from the consultation, Professor Field still has concerns about the likely public and employer perception of foundation degrees. This has not been helped, he says, by the Quality Assurance Agency's unpopular proposal to create a four-level rather than a three-level national qualifications framework for higher education.

He said: "It has raised more questions about the level of the foundation degree. There is a risk it will get confused with degree foundation years. It does not matter that academics understand the difference or what they think, it's a question of what the public thinks."

The QAA appears to be taking on board the barrage of complaints it has received over its framework plans, which would place the foundation degree at the third level. A spokeswoman hinted that part of the problem was a perceived need to leave enough room in the framework for more, rather than fewer, foundation degree-level qualifications.

She said: "We need to look at the technical questions, many of which hinge on the practicalities of using a three-level credit structure. We need to be able to provide, within the framework, growth for a number of qualifications at sub-degree level."

Many believe quality and standards are the key issues on which foundation degrees will succeed or fail. According to a source close to the DFEE-appointed group considering the prototypes, the "crucial" test will be whether foundation degree graduates can progress on to high-status honours degree programmes in other parts of the country, rather than being restricted to institutions in their local consortia.

He said: "The test is not whether institutions embrace the foundation degree at the prototype stage, but whether they embrace the students who graduate from it. If we can shift the emphasis from the initial point of entry to the point of exit, then we will have made progress. If a student can start, say, at the Liverpool City College of Further Education and graduate with a Birmingham University degree, then we will have succeeded. But we are some way from that point at the moment."

Derek Pollard, director of validation services for the Open University and chairman of the Council of Validating Universities, thinks this kind of progression will not be easily achieved, unless institutions are prepared to be more flexible. Universities may need to modify honours degree programmes to accommodate foundation degree graduates.

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"You cannot expect people coming through a two-year programme incorporating work experience to switch comfortably into an existing academic programme, even with a three-month balancing period before they enter the final year as is proposed. In the end the fate of the foundation degree may be as much down to how flexible universities are prepared to be with it, as to how much employers like it," he added.